ANR PIPELINE CO — Notice of Probable Violation

party submissionOfficial PDF320071006_Amendment to Petition for Reconsideration_01282010.pdf#

case documentOfficial PDF320071006_NOPV letter_02082007.pdf#

case documentOfficial PDF320071006_nopv letter_02082007_text.pdf#

party submissionOfficial PDF320071006_operator response to notice_03132007.pdf#

party submissionOfficial PDF320071006_Petition for Reconsideration_12302009.pdf#

320071006_Closure_04232012_text.pdf, page 1Official PDFCERTIFIED MAIL - RETURN RECEIPT REQUESTED April 23, 2012 Mr. Vern Meier Vice President, US Pipeline Operations ANR Pipeline Company TransCanada 717 Texas Avenue Houston, TX 77002-1006 CPF 3-2007-1006 Dear Mr. Meier: On December 4, 2009, the Pipeline and Hazardous Materials Safety Administration (PHMSA) issued to ANR Pipeline Company a Final Order in the above-referenced case. This Order included a Compliance Order. Based on our review of the documentation you provided, it has been determined that you have complied with the terms of this Order. Accordingly, this case is now closed and no further action is contemplated with respect to the matters involved in this case. Thank you for your cooperation in this matter. Sincerely, David Barrett Director, Central Region Pipeline and Hazardous Materials Safety Administration#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 1Official PDFDEC 30 2010 Mr. Lee Hobbs President ANR Pipeline Company 717 Texas St Ste 2500 Houston, TX 77002 Re: CPF No. 3-2007-1006 Dear Mr. Hobbs: Enclosed please find the Decision on the Petition for Reconsideration filed by ANR Pipeline Company in the above-referenced case. For the reasons set forth in the Decision, your petition is denied on all counts, except that PHMSA will not consider the company’s violation to be a “prior offense” for purposes of any future civil penalty assessment. The stay of the compliance order, which was previously granted on January 15, 2010, is hereby lifted and therefore ANR must comply with the order by the deadlines specified in the Decision. When the terms of the compliance order have been completed, as determined by the Director, Central Region, this enforcement action will be closed. Service of this document by certified mail is deemed effective upon the date of mailing, or as otherwise provided under 49 C.F.R. § 190.5. Thank you for your cooperation in this matter. Sincerely, Jeffrey D. Wiese Associate Administrator for Pipeline Safety Enclosure cc: Mr. David Barrett, Director, Central Region, PHMSA Mr. Eugene R. Morabito, Attorney for ANR Pipeline Company 5250 Corporate Drive, Troy, Michigan 48098 CERTIFIED MAIL – RETURN RECEIPT REQUESTED [ 7005 1160 0001 0039 9969]#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 2U.S. DEPARTMENT OF TRANSPORTATION PIPELINE AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION OFFICE OF PIPELINE SAFETY WASHINGTON, D.C. 20590 ____________________________________ In the Matter of ) ANR Pipeline Company, ) CPF No. 3-2007-1006 ) ) ) Petitioner. ) ____________________________________) DECISION ON PETITION FOR RECONSIDERATION On December 4, 2009, pursuant to 49 U.S.C. § 60118 and 49 C.F.R. § 190.213, the Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a Final Order in this proceeding, finding that ANR Pipeline Company (ANR or Petitioner) had violated 49 C.F.R. § 192.625(b) by failing to odorize natural gas transported by transmission pipeline in certain populated areas. ANR, a subsidiary of TransCanada Corporation, operates approximately 10,000 miles of pipelines transporting natural gas from production fields in Louisiana, Oklahoma, Texas, and the the violation, but required Petitioner to take certain corrective actions to comply with the regulation. Gulf of Mexico to markets in the Midwest.1 The Final Order did not assess a civil penalty for By letter dated December 23, 2009, ANR requested an extension of time to file a petition for reconsideration of the Final Order. Before PHMSA responded to that request, ANR submitted its Petition for Reconsideration dated December 30, 2009 (Petition). In its Petition, ANR requested reconsideration of the one finding of violation. The company also requested, in the alternative, that PHMSA extend the deadline for completing the terms of the compliance order, and that the finding of violation not be considered a prior offense. In addition, ANR requested leave to amend the Petition and requested a stay of the compliance order pending this Decision. By letter dated January 15, 2010, PHMSA stayed the terms of the compliance order pending the issuance of this Decision and granted Petitioner an additional 10 days to amend the Petition. ANR submitted an Amendment to the Petition by letter dated January 28, 2010 (Petition Amendment). Pursuant to 49 C.F.R. § 190.215, a respondent may petition PHMSA for reconsideration of a final order. PHMSA does not consider repetitious information, arguments, or petitions, but may consider additional facts or arguments, provided that the respondent submits a valid reason why such information was not presented prior to issuance of the final order. PHMSA may grant or 1 ANR Pipeline Company website, http://www.anrpl.com/company_info.#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 32 deny, in whole or in part, a petition for reconsideration without further proceedings, but may request additional information, data, and comment as deemed appropriate. I. Background ANR operates a system of natural gas pipelines that includes a major interstate transmission line that transports gas from Texas and Oklahoma to Wisconsin and Michigan. The portion of the ANR system relevant to this proceeding is the Illinois–Wisconsin lateral system, a subsidiary system of transmission pipelines that branches away from the main interstate line at a single point in Illinois (Sandwich Station), delivering gas to different distribution facilities in Wisconsin.2 The lateral system consists of various branches, compressor stations, and pipes with varying diameters and pressures. In some areas of the lateral system, pipelines branch away from other pipelines, which themselves branch from other pipelines. The system runs through various Class 1, Class 2, and Class 3 areas, as defined in 49 C.F.R. § 192.5. 3 The Final Order, issued on December 4, 2009, found that ANR had violated § 192.625(b) by failing to odorize gas in those portions of the lateral system located in Class 3 areas. Section 192.625 provides, in pertinent part: § 192.625 Odorization of gas. (a) A combustible gas in a distribution line must contain a natural odorant or be odorized so that at a concentration in air of one-fifth of the lower explosive limit, the gas is readily detectable by a person with a normal sense of smell. (b) After December 31, 1976, a combustible gas in a transmission line in a Class 3 or Class 4 location must comply with the requirements of paragraph (a) of this section unless: . . . (3) In the case of a lateral line which transports gas to a distribution center, at least 50 percent of the length of that line is in a Class 1 or Class 2 location; . . . . This regulation requires ANR to odorize gas in those portions of its lateral system located in Class 3 areas, unless, in the case of a lateral line which transports gas to a distribution center, at least 50 percent of the length of that line is in a Class 1 or Class 2 location. ANR acknowledged that the subject pipelines were not odorized, but argued that the pipelines were lateral lines that ran mostly through rural areas and therefore qualified for the exception from odorization under § 192.625(b)(3).4 2 A transmission line is “a pipeline, other than a gathering line, that: (1) transports gas from a gathering line or storage facility to a distribution center, storage facility, or large volume customer that is not down-stream from a distribution center; (2) operates at a hoop stress of 20 percent or more of [specified minimum yield strength]; or (3) transports gas within a storage field.” 49 C.F.R. § 192.3. 3 Class 1 and Class 2 locations are generally rural areas with lower concentrations of population near the pipeline, while Class 3 and Class 4 locations have more population and other sensitive areas near the pipeline. See 49 C.F.R. § 192.5. 4 Final Order at 3.#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 43 The term “lateral line” is not defined in 49 C.F.R. Part 192. In the Final Order, PHMSA agreed with ANR that the subject pipelines were “laterals,” based on the generally understood meaning that such lines are ones transporting gas from transmission lines to particular end points. 5 The Final Order determined that PHMSA had never expressly articulated how to apply the exception in § 192.625(b)(3) to a lateral line that was part of a “lateral system.” In other words, the agency did not have an established method for determining the length of a lateral line for purposes of calculating whether “at least 50 percent of the length of that line is in a Class 1 or Class 2 location” under § 192.625(b)(3). While it was clear from the text of the regulation that the end point of the pipeline was the distribution center, the beginning point was not so certain. 6 In deciding how the length of a lateral line should be measured for purposes of applying § 192.625(b)(3), the Final Order evaluated the text of the rule, the intent and safety purpose of the odorization requirement, and the methods for calculating length advocated by ANR and PHMSA regional staff at the hearing. The Final Order concluded that the most reasonable interpretation of the regulation was to calculate the length of a lateral line, for purposes of this section, by measuring the line from its terminus at a distribution center to the first upstream connection with another transmission line, whether that was another lateral transmission line or a non-lateral transmission line. A diagram was provided in the Final Order to help clarify this interpretation and how § 192.625(b)(3) should be applied to the lateral system operated by ANR. In the Final Order, PHMSA rejected the methodology advocated by ANR because it involved calculating the length of each lateral line from the distribution facility all the way back to the beginning of the entire lateral system at Sandwich Station. This method was rejected because it resulted in “double counting” upstream portions of the lateral system lying closer to the main interstate line that served as common branches for multiple lateral lines. The duplicative counting of such mileage—mileage generally located in rural Class 1 and Class 2 areas—skewed the calculation towards determining that each pipeline had more than 50 percent of its length in a Class 1 and Class 2 location. The Final Order found ANR’s methodology had artificially inflated the number of lines meeting the exception for odorization, resulting in up to 100 miles of Class 3 populated areas being un-odorized. This practice was found to frustrate the safety purposes of the rule, which provides for the odorization of gas in populated areas in order to increase the likelihood that a gas leak will be detected, i.e., smelled, by persons living and working in the vicinity of the lines. The methodology proposed by ANR was also found to be inconsistent with the intent of the exception in § 192.625(b)(3), which “in most cases” was to exclude only “short” segments of pipeline in predominantly rural areas where the likelihood of detecting odorized gas was reduced, due to the smaller population in such areas. 7 The Final Order also rejected ANR’s contention that PHMSA regional offices had historically accepted the company’s methodology, finding “there is no evidentiary support for this assertion 5 Id. at 5 (citing PHMSA’s Stakeholder Communications website definition of “lateral.”) 6 This only becomes an issue where a lateral line is part of a “lateral system,” because if a lateral line simply runs between a non-lateral transmission line and a distribution center, the only possible means of calculating the length of that lateral would be from its beginning at the non-lateral transmission line to its end at the distribution center. 7 Final Order at 6.#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 54 other than perhaps an absence of enforcement cases against operators for similar violations. The absence of prior enforcement cases does not equate to an affirmative statement of administrative policy.”8 After reviewing all of the evidence presented in light of the regulatory interpretation, the Final Order determined that the lateral transmission pipelines at issue in the case did not meet the exception for odorization and therefore the gas transported by the pipelines in Class 3 locations had to be odorized. Since ANR had acknowledged such pipelines were not odorized, PHMSA found the company in violation of § 192.625(b). The Final Order did not assess a civil penalty for the violation, but ordered ANR to take certain actions to bring the pipeline system into compliance. II. Discussion In its Petition, ANR advances two basic arguments for withdrawing the finding of violation. First, the company contends that in interpreting the regulation in the Final Order, PHMSA has created and applied a new substantive rule without notice and comment, in violation of the Administrative Procedures Act (APA), 5 U.S.C. § 553.9 Second, ANR contends that the methodology articulated in the Final Order is arbitrary and unreasonable.10 I address these arguments in turn. 1. Whether the interpretation in the Final Order required APA notice and comment. Petitioner contends that PHMSA’s interpretation of § 192.625(b)(3) in the Final Order departs from long-standing agency policy and therefore constitutes a new substantive rule issued without notice and comment, in violation of the APA. Specifically, ANR contends that “the Order’s new methodology for calculating the length of a lateral pipeline constitutes a new substantive rule changing established PHMSA practice and as such must be submitted for notice and comment under the APA.”11 Petitioner argues further that the Final Order “does not merely provide an interpretation of an ambiguous or unclear regulation; rather, the Order substantively alters an established regulatory and universally accepted practice by adopting a novel ‘segment’ interpretation of a lateral line . . . .”12 ANR has raised this argument before.13 In response to the company’s contention that the interpretation would constitute a change in administrative policy that must be adopted by rulemaking, PHMSA stated in the Final Order that it found no evidence to suggest there was settled administrative policy upset by this case. It noted that ANR had not cited any agency statement or practice that had established another method for calculating the length of a lateral in 8 Id. at 8. 9 Petition at 1. 10 Id. at 1. 11 Id. at 3. 12 Id. at 2. 13 See, e.g., ANR’s Response to the Notice of Probable Violation (Response), at 3 (Mar. 13, 2007).#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 65 a lateral system under § 192.625(b)(3). PHMSA also dismissed ANR’s contention that several PHMSA regional offices had accepted the company’s understanding of the regulation, on the ground that there was simply no evidence on this issue “other than perhaps an absence of anything, the lack of public statements on the issue showed that PHMSA had not formally considered or determined a definitive method for calculating the length of lateral lines under enforcement cases against operators for similar violations.”14 The Final Order concluded that, if § 192.625(b)(3). As referenced above, 49 C.F.R. § 190.215 provides that PHMSA does not consider repetitious arguments presented in a petition for reconsideration. Therefore, I dismiss, as a matter of procedure, ANR’s repetitious argument that PHMSA has departed from long-standing agency policy. I do note, however, that ANR has presented, for the first time, a citation to a court decision that the company believes supports its position. For the sole purpose of distinguishing that judicial decision, I briefly address Petitioner’s argument. In its Petition, ANR cites Shell Offshore Inc. v. Babbitt in support of its contention that PHMSA has created a new substantive rule by departing from its long-standing agency policy. 15 In Shell Offshore, the court held that the Department of Interior had changed its policy of approving the use of tariff rates by lessee royalty payors—a policy that it had consistently followed for at least five years. Although the former policy of accepting the use of tariff rates had never been reduced to a written statement, the court found that the policy “was undeniably [the agency’s] long established and consistently followed practice. ”16 The court held that “[i]f a new agency policy represents a significant departure from long established and consistent practice that substantially affects the regulated industry, the new policy is a new substantive rule and the agency is obliged, under the APA, to submit the change for notice and comment.”17 The holding in Shell Offshore was based, in part, on a decision by the D.C. Circuit Court of Appeals in Alaska Professional Hunters Assoc. v. FAA. 18 In that case, an FAA regional office had for years advised hunting and fishing guides in Alaska that they were exempt from certain commercial pilot regulations. When the FAA headquarters discovered this policy being espoused by its regional office, the agency published a notice announcing that such guides were no longer considered exempt. On appeal, the court found that the FAA’s consistent affirmative statements regarding Alaskan hunting and fishing guides over the years had established a definitive interpretation of the regulation, and that “[w]hen an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended its rule, something it may not accomplish without notice and comment.”19 14 Final Order at 8. 15 238 F.3d 622 (5th Cir. 2001). 16 Id. at 630. 17 Id. 18 177 F.3d 1030 (D.C. Cir. 1999). 19 Id. at 1034.#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 76 Central to both these decisions is that the two agencies in question had both followed long- established, open, and consistent policies from which the agencies suddenly and significantly departed, giving rise to the legal challenges in question. In the present matter, however, there is simply no evidence that PHMSA had “given its regulation a definitive interpretation, and later where administrative agencies have not clearly established a policy or practice, courts have declined to follow Shell Offshore or Alaska Professional Hunters. Similarly, courts have also been unwilling to find that the mere absence of enforcement action by an agency constitutes a regulatory interpretation or an established practice from which an agency may only depart through notice and comment. significantly revised that interpretation.”20 This factual distinction is critical, since in situations For example, in MetWest Inc. v. Secretary of Labor, the court found that OSHA’s 13-year practice of not enforcing a particular provision of its regulations regarding the disposal of needles in the workplace did not establish an “express, direct, and uniform interpretation” of the applicable regulation, and therefore the agency had not created a substantive rule change when it issued a citation for violating the provision.21 Likewise, in Warshauer v. Solis, the court determined that an agency’s decision not to enforce certain requirements, even if it could be considered a “policy,” did not rise to the level of an established interpretation under Alaska Professional Hunters. 22 In Warshauer, despite a showing that the agency had an enforcement policy of “mere acquiescence” to the conduct at issue was found insufficient to trigger the need for notice-and-comment rulemaking.23 As explained in the Final Order, PHMSA did not have an established policy or position on the method of calculating the length of a lateral line in a lateral system for purposes of the odorization exception, and the mere absence of prior enforcement did not rise to the level of constituting an affirmative statement of agency policy. In its Petition, however, ANR contends that PHMSA “ignores relevant statements in the record demonstrating that the present ‘interpretation’ runs contrary to PHMSA’s past practices.”24 Specifically, Petitioner points to its statement at the hearing that compliance audits by PHMSA since 1990 included discussion of ANR’s interpretation of the regulation and that “compliance audit reviews . . . implicitly acknowledged Respondent’s qualification for the § 192.625(b)(3) exception without finding a violation.”25 20 Id. 21 560 F.3d 506, 510 (D.C. Cir. 2009). 22 577 F.3d 1330, 1340-41 (11th Cir. 2009). 23 Id. at 1340. See also, Devon Energy Corp. v. Norton, [verify cite] 2007 WL 2422005 *5 (D.D.C. 2007) (distinguishing Shell Offshore, because in that case, “there was no question that Interior had made a change in policy and departed significantly from a consistent, prior practice of not requiring the certification. By contrast, in [Devon] . . . it is not all clear that the 2003 decision is a departure from a longstanding practice of Interior.”); Visiting Nurse Assoc. v. Thompson, 378 F. Supp.2d 75, 89 (E.D.N.Y. 2004) (declining to follow Shell Offshore and Alaska Professional Hunters because there was “no evidence that the [agency’s interpretation] was at odds with either a prior written interpretation of the cost-reporting regulations or any pattern of practice sufficiently longstanding to establish that the Secretary had arrived at a definitive interpretation of these rules.”) 24 Petition at 4. 25 Id. (citing ANR Hearing Presentation, Slide 20); Petition Amendment at 1.#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 87 Petitioner’s statements in this regard were not “ignored” in the Final Order. Rather, PHMSA found there was simply no evidence demonstrating that the statements were true. While ANR is correct that agency representatives at the hearing did not introduce evidence refuting the company’s assertion, true. Since the statements could not be supported with any probative evidence, the claims simply did not carry much value in determining whether or not PHMSA had a long-standing policy. 26 ANR likewise failed to produce any evidence that the statements were In apparent response to such lack of evidence, ANR presents in its Petition Amendment, for the first time, an affidavit dated January 25, 2010, from the company’s Senior Field Compliance Engineer, who attests that in 2002 PHMSA performed an inspection of the ANR pipeline facility and discussed with him the odorization, or lack thereof, of the Illinois–Wisconsin lateral system. The employee stated that, based on his knowledge and experience, the fact that PHMSA did not issue a citation for a violation of § 192.625(b) following the 2002 inspection indicated that PHMSA found the company’s practice to be acceptable. 27 As a procedural matter, ANR did not submit in its Petition any reason why such evidence was not presented prior to issuance of the Final Order, as required under § 190.215. Even accepting the validity of the witness’s statement, however, this new evidence demonstrates only that at a single point in time, a PHMSA representative reviewed ANR’s methodology and did not issue a probable violation. This fact alone, even if true, does not constitute a “long established and consistently followed practice” upon which ANR could reasonably rely. Finally, Petitioner argues that PHMSA “abused its discretion” under the APA by interpreting and applying § 192.625(b)(3) in an adjudication rather by rulemaking.28 Again, ANR has raised this basic argument before.29 In response to the contention that PHMSA should enunciate this interpretation by rulemaking, the agency determined in the Final Order that it is not necessarily required to undertake a rulemaking in order to interpret its own regulations, and that courts have recognized the discretion of agencies to set forth regulatory interpretations either by adjudication or rulemaking. 30 As referenced above, PHMSA does not consider repetitious arguments presented in a petition for reconsideration. Therefore, I dismiss ANR’s repetitious argument that PHMSA failed to comply with the APA by interpreting this particular regulation through its adjudication process. I note further, however, that ANR has suggested the agency consider several court decisions the company believes support its position. For the sole purpose of distinguishing those decisions, I address Petitioner’s argument. 26 Petition Amendment at 2. 27 Petition Amendment, Attachment 1 at ¶ 6. 28 Id. at 2. 29 See Final Order at 8 (citing ANR’s Supplemental Response to the Notice of Probable Violation at 2 (Nov. 20, 2007). 30 Final Order at 9 (citing NLRB v. Bell Aerospace Co., 416 U.S. 267, 292–94 (1974) (stating that an agency is “not precluded from announcing new principles in an adjudicative proceeding”)).#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 98 In its Petition Amendment, ANR cites the decision in First Bancorporation v. Board of Governors of the Federal Reserve System, where the Board had issued an order unconditionally allowing the petitioner to acquire a particular financial institution. 31 Several years later, when the same party applied for approval to acquire a similar institution, the agency issued an order imposing new conditions on such an acquisition and, at the same time, placed those same new conditions on petitioner’s previous acquisition, which had already been unconditionally approved. The court found that the second order “contains no adjudicative facts having any particularized relevance to petitioner,” and therefore that the Board’s order “was thus merely a an abuse of discretion for the agency to improperly attempt to change its policy with regard to vehicle by which a general policy would be changed.”32 Under such facts, the court held it was such acquisitions by adjudication, and that such a significant policy change was required to be made through rulemaking under the APA. Similarly, in the other case cited by ANR, Patel v. Immigration and Naturalization Service, the court looked at facts involving the agency’s alleged attempt to implement a new substantive rule through adjudication. 33 In that case, the INS had issued an order finding that the respondent had failed to meet an exception for deportation because he had not complied with what the agency viewed as a requirement for aliens to show their commercial investment in the U.S. through expanded job opportunities. The court found that not only was the job opportunities requirement not mentioned in the regulation establishing an exception for aliens who have made significant commercial investments in the U.S., but the INS had previously proposed to include such a condition in the regulation but then, in response to comments, had eliminated it from the final rule. For this reason, the court found that the INS had “attempted to add a requirement to the . . . regulation [through its order] which had been expressly discarded during its rulemaking proceedings.”34 Under such facts, the court held that the agency had abused its discretion by announcing what amounted to a new substantive rule by adjudication rather than rulemaking. In contrast to these cases, in which an agency tried to use the adjudicatory process to implement a significant policy change or to establish a new requirement, the present matter does not reflect an attempt by PHMSA to use this adjudication “merely [as] a vehicle by which a general policy would be changed. and in this Decision, PHMSA has not changed an established policy, but, rather, has interpreted the manner in which the exception in § 192.625(b)(3) should be applied to the specific facts presented by Petitioner’s particular pipeline system. ”35 Moreover, as has already been discussed at length, both in the Final Order In a court decision more analogous to the present matter, the FCC interpreted an otherwise ambiguous regulatory term (i.e., “in substantial accordance with . . . . the station authorization”) in an adjudication by deciding that, in the context of radio station construction, the term means within one mile of the coordinates authorized by the agency.36 On appeal by several parties who 31 728 F.2d 434 (10th Cir. 1984). 32 Id. at 438. 33 638 F.2d 1199 (9th Cir. 1981). 34 Id. at 1202. 35 First Bancorp., 728 F.2d at 438. 36 Cassell v. FCC, 154 F.3d 478, 481 (D.C. Cir. 1998).#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 109 argued the FCC had adopted a substantive rule without notice and comment, the court found their argument “without merit.” The court held that “it is well settled that an agency is not precluded from announcing new principles in an adjudicative proceeding. consistent with the determination in the Final Order that the agency is not necessarily required to undertake a rulemaking in order to announce the interpretation of the exception in § 192.625(b)(3). ”37 This decision is For all of the reasons set forth above and in the Final Order, I reject ANR’s contention that PHMSA violated the APA by issuing a final order interpreting an agency regulation without going through notice and comment. 2. Whether the interpretation of § 192.625(b)(3) is reasonable. In its Petition, ANR acknowledges that an agency interpretation of a regulation is generally entitled to deference. § 192.625(b)(3) is arbitrary, capricious, unreasonable, and not supported by the evidence in the record. Petitioner presents several different arguments in this regard. 38 The company argues, however, that PHMSA’s interpretation of First, ANR argues that the interpretation is arbitrary and capricious because it “introduces a new criterion of length into the analysis of whether a lateral qualifies for the § 192.625(b)(3) exception.”39 Petitioner contends that the “interpretation is flawed and illogical in application” because the concept of length “is not a concept that is addressed in the regulatory definition of a transmission line.”40 As grounds for its position, the company cites Acadian Gas Pipeline System v. FERC, which found that “[w]here any agency fails to distinguish past practice, its actions may indicate that lack of reasoned articulation and responsibility that vitiates the deference the reviewing court would otherwise show.”41 I reject Petitioner’s contention that PHMSA has introduced a “new criterion of length” into § 195.625(b)(3) in the Final Order, or that the concept of length was not contemplated in the regulation. The text of the regulation clearly states that an exception for lateral lines applies only if at least 50 percent “of the length of that line” is in either a Class 1 or Class 2 location. Thus, the regulation necessarily requires one to calculate the length of a lateral line from one point to another in order to determine whether 50 percent of that distance is in a Class 1 or Class 2 location. PHMSA has not introduced a new concept of length, but simply interpreted how that length should be measured. The Acadian Gas case is further distinguished because there is no past practice from which the agency is departing. For these reasons, I reject Petitioner’s argument that PHMSA has introduced a new concept of length into the regulation. 37 Id. at 486 (citations omitted). 38 Petition at 5. 39 Id. 40 Id. 41 878 F.2d 865, 868 (5th Cir. 1989).#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 1110 In a related argument, ANR asserts that PHMSA has introduced the new concept that a lateral line, in the context of § 192.625(b)(3), must be “short.” This is apparently in response to the finding in the Final Order that ANR’s practice of artificially increasing the mileage of Class 1 and Class 2 areas for each lateral line was inconsistent with the intent of the lateral line exception, which, “in most cases,” was to exclude “short” segments of pipeline in predominantly laterals meeting the exception be short; instead, it rejects the practice of ANR in this particular rural areas.42 The interpretation set forth in the Final Order, however, does not mandate that all case, because the result of the company’s actions is inconsistent with the intent of the rule. Therefore, I reject Petitioner’s argument. Second, ANR questions the reasonableness of the interpretation on the ground that under the Final Order, a lateral that otherwise meets the exception in § 192.625(b)(3) could be bifurcated by a newly constructed interconnecting pipeline, resulting in the loss of its exception status.43 For example, using the hypothetical lateral system diagram in the Final Order, Petitioner argues that a lateral constructed from point H to point D might qualify for the exception, but if an interconnection were subsequently built at point G, the portion from point H to point G might lose its exception status under § 192.625(b)(3). PHMSA has not been presented with an actual situation where a lateral meeting the exception in § 192.625(b)(3) is subsequently bifurcated, and therefore the agency does not decide here whether the interpretation enunciated in the Final Order would cause such a formerly exempt lateral to lose its exception status. I would note, however, in the hypothetical presented that even if the portion from point H to point G did not meet the exception in § 192.625(b)(3), ANR’s concern over the “loss” of an exception is misplaced, because that portion of the line could still potentially qualify for another exception if certain criteria were met. For example, § 192.625(b)(1) provides that odorization is not required for combustible gas in a transmission line in a Class 3 or Class 4 location if “at least 50 percent of the length of the line downstream from that location is in a Class 1 or Class 2 location.” Therefore, I reject Petitioner’s argument that the interpretation is unreasonable in this regard. Third, ANR provides several alternatives to the agency’s interpretation of the term “lateral” under § 192.625(b)(3) and suggests that PHMSA adopt such a “definition” in lieu of the one set forth in the Final Order.44 As noted above, however, the definition of a lateral was not an issue in the Final Order, because PHMSA agreed that the subject pipelines were indeed lateral transmission lines. Rather, the issue was how to calculate the length of a lateral for the specific purpose of applying § 192.625(b)(3). Furthermore, the alternatives provided by ANR provide no further assistance in the application of § 192.625(b)(3), because they generally identify the beginning point of a lateral as the upstream transmission line, just as the interpretation employed by PHMSA does. To the extent there are any inconsistencies between PHMSA’s interpretation 42 Final Order at 6 (citing Odorization of Gas in Transmission Lines, 40 Fed. Reg. 20,279, 20,280 (May 9, 1975)). 43 Petition at 5. 44 Petition at 6.#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 1211 and the various other “definitions” suggested or cited by Petition, the latter are expressly rejected for purposes of § 192.625(b)(3).45 Fourth, ANR objects to the decision in the Final Order that “double-counting” the upstream mileage of pipeline predominantly in Class 1 and Class 2 areas should not be allowed.46 Petitioner contends that “there is no background in the preamble to the rule that indicates that overlapping should not be allowed.” I disagree. As explained in the Final Order, such a methodology can artificially inflate the mileage calculated in Class 1 and Class 2 areas, which, in ANR’s case, led to an improper and erroneous conclusion that approximately 100 miles of pipeline in populated areas were exempted from the odorization standard. Fifth, ANR suggests that PHMSA could calculate the length of the company’s lateral lines from their endpoints at the respective distribution centers back to the line that connects Sandwich Station to the interconnection between ANR’s facilities and another pipeline operated by “this line is the source of the majority of gas delivered in Wisconsin by ANR [and] is a ‘main’ transmission line from which various laterals emanate.” Petitioner also contends this suggestion was discussed at the hearing but “not addressed in the Order.” TransCanada at Fortune Lake, Michigan.47 ANR contends this approach is justified because A review of Petitioner’s presentation at the hearing shows the company argued that each lateral in question should be viewed to begin at Sandwich Station, not some other location suggested in the Petition. 48 The Final Order specifically addressed this argument by noting that ANR had argued that the length of each lateral line “should be traced back to its point of origin at its primary source of supply . . . at the Sandwich Compressor Station.”49 The Final Order noted that such methodology resulted in the “double-counting” of upstream mileage, and formed one of the bases for PHMSA’s rejection of ANR’s methodology for calculating the length of laterals. 50 Finally, ANR contends that the Final Order “arbitrarily limits the applicability of the lateral line exemption by excluding any ‘lateral line’ that does not meet the new test for measuring length, although the simple and unambiguous language in the text of the regulation does not exclude any types of lateral lines—whether such lines are of any particular length, or a certain diameter, or overlapping lines.”51 ANR suggests that the limits of the exception for odorizing gas pipelines in populated areas be much broader than the text of the regulation permits. The regulation itself sets forth certain limiting factors, that is, at least 50 percent of the length of a lateral line ending at a distribution center must be in a Class 1 or Class 2 location. Given the safety importance of 45 See Final Order at 5 (finding no significant inconsistency between the agency’s definition and the various other definitions cited by Petitioner). 46 Petition at 6. 47 Id. 48 See ANR Hearing Presentation, Slides 16-18. 49 Final Order at 3 (citing Response at 2). 50 Id. at 5-7. To the extent Petitioner is proposing alternative measures or activities, the agency has set forth procedures for considering such proposals at 49 C.F.R. § 190.341. 51 Petition at 7 (emphasis in original).#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 1312 resolved the ambiguity in the regulation presented by the novel situation of ANR’s lateral system. The resolution is an interpretation that constitutes a reasonable and justifiable approach based on all of the reasons set forth in the Final Order and in this Decision. Therefore, I reject the general odorization requirement, I must construe this exception narrowly.52 PHMSA has the company’s argument that the limits placed on the applicability of the exception by PHMSA’s interpretation are arbitrary and capricious. For all of the reasons set forth above and in the Final Order, I affirm that the interpretation of 49 C.F.R. § 192.625(b)(3) set forth in the Final Order is not an unreasonable application of the regulation. III. Additional Time to Implement the Compliance Order In its Petition, ANR requests, in the alternative, that the deadlines in the compliance order for completing the corrective actions be extended. 53 Specifically, ANR requests: (1) with regard to Requirement 1, that the 30-day deadline for developing and submitting written procedures for identifying pipelines to be odorized be extended to 60 days; (2) with regard to Requirement 2, that the 60-day deadline for identifying pipelines to be odorized be extended to 120 days; (3) with regard to Requirement 3, that the one-year deadline for performing corrective actions to ensure proper odorization be extended to two years; and (4) with regard to Requirement 4, that the 30-day deadline for submitting written operation and maintenance procedures for odorizers be extended to 60 days. Petitioner requests these extensions because the company would need “to coordinate completion of various tasks with other tasks, and additional time [would be] needed to consult with other affiliates of TransCanada, so we can obtain consistent and better internal specifications than would otherwise occur.”54 With respect to Requirement 3, Petitioner further contends that it should be granted an additional year because “it will need to obtain rights to construct and install above ground odorization facilities at numerous locations on its pipeline system, and acquiring such land rights may be a timely process.”55 ANR also contends that other considerations, such as “material acquisitions, including long lead times, contractor availability, obtaining local permits, determining and minimizing environmental impacts (including possible impact on air emissions), and addressing customer concerns on optimizing facility utilization and avoiding unproductive facility duplication,” will cause delays in meeting the current deadline, making a two-year deadline “more realistic.”56 52 Final Order at 7. 53 Petition at 6-7. 54 Id. at 8. 55 Id. 56 Id.#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 1413 Under ordinary circumstances, filing a petition for reconsideration does not stay the compliance requested in its Petition. Therefore, ANR’s request to extend the deadlines even further is rather than the operator’s receipt of the Final Order. terms of a final order.57 in order to allow the issues discussed herein to be resolved. If anything, this one-year delay in imposing the remedial actions has allowed ANR approximately the same amount of time denied. The deadlines specified in the compliance order will run from the date of this Decision, In this case, Petitioner requested and received a stay of the Final Order Notwithstanding this denial, ANR has raised issues that could potentially cause delays beyond Petitioner’s control. This Decision does not preclude the possibility that an extension of time may be granted in the future for good cause shown. Any such request must be timely submitted by ANR in writing to the Director, Central Region, who may grant an extension of time to comply with any of the required items in the compliance order upon a showing of good cause. IV. Prior Violation The Final Order noted that the ANR’s violation of § 192.625(b) would be “considered a prior offense in any subsequent enforcement action taken against Respondent. ”58 In its Petition, ANR argues that the finding of violation should not be considered a prior offense because PHMSA has based its finding on an interpretation of § 192.625(b)(3) first established in the Final Order. Petitioner also contends that it did not have prior knowledge of the interpretation, such that the company should not be penalized in the future for its application of § 192.625(b)(3) because it neither “intentionally” nor “negligently” violated the regulation. When PHMSA makes a finding of violation in an enforcement matter, the agency generally advises the respondent that the violation will be considered a “prior offense” in any subsequent enforcement action against the company. The agency keeps track of prior offenses under 49 U.S.C. § 60122(b)(1)(B) because, in determining the amount of a civil penalty, PHMSA must consider “any history of prior violations” on the part of the respondent. In practice, if a respondent has a history of prior violations, a new violation may support the assessment of a higher civil penalty, or conversely, the absence of a history of prior violations may support assessment of a lower civil penalty or no penalty at all. In this regard, I find that the violation in this case is one of first impression and therefore that it is appropriate, under the facts and circumstances set forth in the Final Order and this Decision, that the Petitioner should not be penalized for the present violation in future potential enforcement actions. Therefore, PHMSA shall not consider this violation to be a “prior offense” or “prior violation” for purposes of calculating a civil penalty in any subsequent enforcement action taken against ANR. 57 49 C.F.R. § 190.215(d). 58 Final Order at 9.#

320071006_Decision on the Petition for Reconsideration_12302010_text.pdf, page 1514 This decision does not restrict PHMSA’s ability to take enforcement action against Petitioner for violating any pipeline safety regulation, including § 192.625, any agency order, including the present order, or any other requirement under 49 U.S.C. Chapter 601. V. Conclusion For the reasons set forth above, ANR’s Petition is denied with respect to its requests that PHMSA withdraw the finding of violation or, in the alternative, to modify the agency’s interpretation of § 192.625(b)(3) in the manner suggested by Petitioner. ANR’s Petition is also denied with respect to its request to extend the deadlines in the compliance order; however, the deadlines shall run from the date of this Decision, rather than the date of the operator’s receipt of the Final Order. Finally, ANR’s Petition is granted with respect to its request that PHMSA not consider the violation to be a “prior offense” or “prior violation” for purposes of any future civil penalty assessment. This Decision on Petition for Reconsideration is the final administrative action in this proceeding. __________________________________ _____________________ Jeffrey D. Wiese Date Issued Associate Administrator for Pipeline Safety#

320071006_Final Order_12042009_text.pdf, page 1Official PDFDEC 04 2009 Mr. Vern Meier Vice President, Field Operations ANR Pipeline Company TransCanada 717 Texas Avenue Houston, TX 77002-2761 Re: CPF No. 3-2007-1006 Dear Mr. Meier: Enclosed is the Final Order issued in the above-referenced case. It makes a finding of violation and specifies actions to be taken by ANR Pipeline Company to comply with the pipeline safety regulations. When the terms of the compliance order have been completed, as determined by the Director, Central Region, this enforcement action will be closed. Your receipt of this Final Order constitutes service of that document under 49 C.F.R. § 190.5. Thank you for your cooperation in this matter. Sincerely, Jeffrey D. Wiese Associate Administrator for Pipeline Safety Enclosure cc: Ivan A. Huntoon Director, Central Region, OPS Eugene R. Morabito Attorney for ANR Pipeline Company 5250 Corporate Drive Troy, Michigan 48098 CERTIFIED MAIL – RETURN RECEIPT REQUESTED#

320071006_Final Order_12042009_text.pdf, page 2U.S. DEPARTMENT OF TRANSPORTATION PIPELINE AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION OFFICE OF PIPELINE SAFETY WASHINGTON, D.C. 20590 ____________________________________ ) In the Matter of ) ) ANR Pipeline Company, ) CPF No. 3-2007-1006 ) Respondent. ) ____________________________________) FINAL ORDER On June 11-16, July 24-27, September 25-29, and October 9-19, 2006, pursuant to 49 U.S.C. § 60117, a representative of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), conducted an on-site pipeline safety inspection of the facilities and records of ANR Pipeline Company (ANR or Respondent), a subsidiary of TransCanada. ANR operates a natural gas transmission pipeline system that transports gas from production fields in Louisiana, Oklahoma, Texas, and the Gulf of Mexico to markets in the Midwest. The safety inspection took place at the company’s pipeline facilities in Kansas, Missouri, Illinois, Indiana, and Wisconsin. As a result of the inspection, the Director, OPS Central Region (Director), issued to Respondent, by letter dated February 8, 2007, a Notice of Probable Violation and Proposed Compliance Order (Notice). In accordance with 49 C.F.R. § 190.207, the Notice proposed finding that Respondent had committed a single violation of the natural gas pipeline safety regulations (49 C.F.R. Part 192) and proposed ordering Respondent to take certain measures to correct the alleged violation. In addition, pursuant to 49 C.F.R. § 190.205, the Notice advised Respondent to take appropriate corrective action to address several warning items or face future potential enforcement action. Respondent responded to the Notice by letter dated March 13, 2007 (Response), contesting the allegation of violation and requesting a hearing. Respondent supplemented its Response by letter dated November 20, 2007 (Supplemental Response). In accordance with 49 C.F.R. § 190.211, a hearing was held on November 29, 2007, in Kansas City, Missouri, with an attorney from the Office of Chief Counsel, PHMSA, presiding. After the hearing, Respondent provided additional information by letter dated December 11, 2007 (Brief).#

320071006_Final Order_12042009_text.pdf, page 32 FINDING OF VIOLATION Item 5 in the Notice alleged Respondent violated 49 C.F.R. § 192.625(b), which states in relevant part: § 192.625 Odorization of gas. (a) A combustible gas in a distribution line must contain a natural odorant or be odorized so that at a concentration in air of one-fifth of the lower explosive limit, the gas is readily detectable by a person with a normal sense of smell. (b) After December 31, 1976, a combustible gas in a transmission line in a Class 3 or Class 4 location must comply with the requirements of paragraph (a) of this section unless: (1) At least 50 percent of the length of the line downstream from that location is in a Class 1 or Class 2 location; [or] . . . (3) In the case of a lateral line which transports gas to a distribution center, at least 50 percent of the length of that line is in a Class 1 or Class 2 location . . . . The Notice alleged that Respondent violated § 192.625(b) by failing to odorize combustible gas in certain transmission pipelines in Class 3 locations. Respondent failed to odorize seven transmission lateral lines in Class 3 locations, further alleging that the laterals did not qualify for an exception under § 192.625(b)(3) because less than 50 percent of their lengths were in Class 1 or Class 2 locations. The seven laterals were Line Numbers: 360 (Appleton); 266 (N. Appleton); 207 (Jackson); 321 (New Berlin); 355 (Oshkosh); 1-355 (Oshkosh Loop); and 361 (Little Chute). The Notice also alleged that Respondent failed to odorize two additional transmission lines, and that those lines did not qualify for the exception in § 192.625(b)(3) because the pipelines were not lateral lines. The Notice further alleged those two pipelines did not qualify for the exception in § 192.625(b)(1) because at least 50 percent of the length of such lines downstream from the Class 3 locations were not in either Class 1 or Class 2 locations. The two pipelines were Line Numbers 350 (Green Bay) and 201 (Madison). 1 The Notice alleged specifically that The issue presented in this matter is whether the ANR pipelines cited in the Notice are lateral lines and whether they meet an exception from odorization. Section 192.625(b) requires that a combustible gas in a transmission line in a Class 3 or Class 4 location must be odorized so that at a certain concentration in air, the gas is readily detectable by a person with a normal sense of smell. Notwithstanding this requirement, the exception in § 192.625(b)(3) provides that in the case of a lateral line transporting gas to a distribution center, the gas is not required to be odorized if at least 50 percent of the length of the lateral line is in a Class 1 or Class 2 location. The relevant portion of Respondent’s pipeline system consists of an interstate gas transmission line and a subsidiary pipeline system that branches away from the interstate line. This subsidiary system, which may be referred to as ANR’s Illinois–Wisconsin lateral system, branches away 1 Class 1 and Class 2 locations are generally rural areas with a lower concentration of population near the pipeline, while Class 3 and Class 4 locations have more population and other sensitive areas near the pipeline. See § 192.5.#

320071006_Final Order_12042009_text.pdf, page 43 from the interstate line at the Sandwich compressor station in Illinois (Sandwhich Station) and delivers gas to various distribution facilities in Wisconsin. There are pipes of varying diameters and pressures, branches, and compressor stations throughout the subsidiary lateral system. In some areas of the lateral system, pipelines branch away from other pipelines, which themselves branch from other pipelines. Figure 1, below, provides an illustrative example of a lateral system. Figure 1. Hypothetical lateral system (not to scale). In its Response and at the hearing, Respondent acknowledged that the pipelines referred to in the Notice are not odorized. ANR argued, however, that PHMSA’s application of the term “lateral line” in the Notice was too narrow and that a more common understanding of the term should be employed to properly apply the exception in § 195.625(b)(3). Respondent noted that the natural gas pipeline safety regulations in 49 C.F.R. Part 192 do not define the term “lateral line” and Respondent had therefore utilized a definition from the American Gas Association’s (AGA) website, which defines a lateral as “[a] pipe in a gas distribution or transmission system which branches away from the central and primary part of the system.”2 Parsing the language of the AGA definition, Respondent interpreted the word “the” in the definition to mean that only one part of a pipeline system can be considered “central and primary.” Respondent contended that under such a definition, each pipeline that branches away from ANR’s single interstate transmission line must be a lateral. More specifically, Respondent contended that for each of the pipelines referenced in the Notice, “the lateral line ends at a distribution center, and for the purposes of this regulation, should be traced back to its point of origin at its primary source of supply . . . at the Sandwich Compressor Station.”3 2 AGA: Natural Gas Glossary, http://www.aga.org/Kc/aboutnaturalgas/glossary (follow “L” hyperlink to “Lateral”) (last visited Sept. 10, 2009). 3 Response at 2.#

320071006_Final Order_12042009_text.pdf, page 54 Since the entire lateral system in this case begins at Sandwich Station (for example, point “H” in Figure 1), Respondent contended that the length of each lateral must be calculated from its end point at the respective distribution center (for example, point “A”) back to Sandwich Station. When ANR measured each line from Sandwich Station to its respective distribution center, the company determined that each one qualifies for the exemption in § 195.625(b)(3) because 50 percent or more of its length is in a Class 1 or Class 2 location. ANR further argued that the company had never previously been found in violation of this regulation in the past, despite inspections performed by OPS in 1995, 2002, and 2006. Respondent also could not find an enforcement case brought by PHMSA against another operator for the same violation nor any public statements by the agency interpreting the term “lateral line. ” Therefore, Respondent inferred that its practices and interpretation of § 192.625(b)(3) were acceptable. ANR further contended that if PHMSA were to adopt the application of § 192.625(b)(3) proposed in the Notice, the agency would have to change its policy and longstanding interpretation of the lateral line exception, a process that should more properly be undertaken through the rulemaking process. 4 At the hearing, OPS representatives opposed ANR’s methodology of calculating the length of the company’s lateral lines back to Sandwich Station, arguing the operator had not correctly applied the concept of a “lateral line. ” They acknowledged Part 192 does not define the term “lateral line,” but insisted the term generally refers to any transmission line that branches off from another transmission line and terminates at a distribution center. OPS explained that a lateral may branch off from another lateral, and, based upon the size of a pipeline system, there may be multiple transmission lines from which laterals branch off. OPS argued at the hearing that the length of a transmission line for the purpose of calculating the percentage of pipeline mileage in Class 1 and Class 2 locations under § 192.625(b)(3) cannot be traced back through multiple branches to the beginning of the entire lateral system, but must be calculated individually for each pipe segment. OPS further argued that Lines 201 and 350 were not laterals due to their larger size and throughput volume.5 In its Brief, ANR contested the agency’s interpretation of the term “lateral line, ” arguing there is no basis in the regulatory text or history to support the position that a lateral is measured as a “segment” of pipe. ANR argued further that “no specific criteria were provided concerning the parameters that would, from a PHMSA outlook, prevent [L]ine 201 or any other lateral from otherwise being eligible to use the section 192.625(b)(3) exemption for lateral lines.”6 4 Supplemental Response at 2. 5 After prompting by OPS at the hearing, ANR acknowledged the company had never requested an interpretation or other assistance from OPS with respect to these issues as provided for by 49 C.F.R. § 190.11. 6 Brief at 2.#

320071006_Final Order_12042009_text.pdf, page 65 Lines 201 and 350 As an initial matter with respect to Lines 201 and 350, I agree with Respondent that neither the regulation nor any public statements by PHMSA appear to establish any size or throughput requirements for a pipeline to be deemed a “lateral line. ” At the hearing, when Respondent asked OPS what such size and throughput requirements would be, the agency representatives were unable to provide a clear and articulable answer. Since the record does not contain sufficient evidence to support the allegation in Item 5 that Lines 350 and 201 did not qualify for the lateral line exception, I dismiss this portion of the allegation without prejudice. Methodologies for calculating the length of a lateral line under § 192.625(b)(3) Section 192.625(b) provides that combustible gas in a transmission line in a Class 3 or Class 4 location must be odorized so that at a certain concentration in the air, the gas is detectable by a person with a normal sense of smell. Respondent acknowledged, for purposes of this case, that the pipelines at issue are transmission lines. In addition, Respondent acknowledged that portions of the lateral system are in Class 3 locations. Therefore, those portions in Class 3 locations must be odorized pursuant to § 192.625(b) unless one of the enumerated exceptions applies. The exception in § 192.625(b)(3) provides that in the case of a lateral line transporting gas to a distribution center, a pipeline need not be odorized in a Class 3 or Class 4 location if “at least 50 percent of the length of that line is in a Class 1 or Class 2 location.” A “lateral line” is generally understood to be a pipeline that transports gas from a transmission line to a particular end point. For example, PHMSA’s stakeholder website for educating the public about pipeline transportation includes a glossary that defines a “lateral” line as “a segment of a pipeline that branches off of the main or transmission line to transport the product to a termination point, such as a tank farm or a metering station.”7 I find no significant inconsistency between this definition and the various other industry definitions cited by Respondent. central question that must be decided, however, is how an operator must calculate the length of a lateral line that terminates at a distribution center for purposes of applying the exception from odorization in § 192.625(b)(3). Both parties acknowledge Part 192 does not explicitly define the length of a lateral line for purposes of § 192.625(b)(3), other than by specifying its end point is a distribution center. 8 The The methodology advocated by ANR for calculating the length of a lateral line measures the line from its end point at the distribution facility to the beginning of the entire lateral system where the system connects to the main interstate transmission line. In this case, that single connection point is at Sandwich Station. The noteworthy aspect of ANR’s methodology, when applied to its lateral system, is that since multiple “laterals” are measured from different distribution centers to 7 PHMSA Stakeholder Communications: Glossary, http://primis.phmsa.dot.gov/comm/glossary (follow “Lateral” hyperlink) (last visited Sept. 10, 2009). There is no indication this definition was developed with the intent to aid in the interpretation of any regulations. Nevertheless, I find it illustrative of the common meaning of the term. 8 In addition to the AGA definition mentioned above, Respondent also cited other definitions of “lateral,” including one from an Environmental Impact Statement issued by the Federal Energy Regulatory Commission, in which OPS was a participating agency, and a “draft” definition prepared by the American National Standards Institute.#

320071006_Final Order_12042009_text.pdf, page 76 the same beginning point, their calculated lengths include the same upstream portions, i.e., those portions of the lateral system closer to the main interstate pipeline. Accordingly, those portions are “double-counted” each time they are factored into the length of a different lateral line. For example, in Figure 1, ANR would calculate the length of each lateral for purposes of applying § 192.625(b)(3) as follows: A to H; B to H; C to H; and D to H. Using this methodology, the average length of the seven laterals identified in the Notice is approximately 172 miles, with roughly nine percent of each line located in Class 3 areas. The methodology advocated by OPS, on the other hand, calculates the length of a lateral from its end point at the distribution facility to the line’s first upstream connection with another transmission pipeline, regardless of whether or not that transmission line is another lateral. For example, in Figure 1, OPS would calculate the length of the laterals for purposes of applying § 192.625(b)(3) as follows: A to E; B to E; C to F; and D to G. Using this methodology, the average length of the seven pipelines identified as laterals in the Notice is approximately two miles, with roughly 76 percent in Class 3 areas. To determine the proper method of calculating the length of a lateral line for purposes of applying the odorization requirement, it is important to be guided by the text of the regulation and the intent and purpose of the rule. As noted above, it is not readily apparent from the text of the regulation where the beginning of a lateral is for purposes of calculating its length, particularly when a lateral system has one beginning point but numerous branches leading to various distribution centers. The regulatory history of the rule provides helpful information in this regard. The intent and purpose of the gas odorization rule was to establish “odorization requirements . . . for transmission lines in populated areas.”9 Odorizing gas “allows the early detection of leaks in open air by the public, ” which is particularly important in populated areas because of the heightened risk of a pipeline incident.10 Persons in the vicinity of a gas leak will generally be able to smell the gas if it is odorized, which increases the opportunity for early detection and abatement of risk. To address this concern, PHMSA established “a general requirement for PHMSA and pipeline operators must begin with the presumption that combustible gas in a transmission line in a Class 3 or Class 4 location must be odorized unless one of the enumerated odorization of gas in transmission lines in Class 3 and Class 4 locations.”11 exceptions applies. Accordingly, The intent and purpose of the § 192.625(b)(3) exception is likewise discussed in the regulatory history. The exception is intended to address certain lateral transmission lines situated predominantly in a Class 1 or Class 2 location and which serve a distribution center from an interstate transmission line. OPS found that since “in most cases the segment of [the lateral] line to be odorized is short,” the costs of installing and operating odorizers would exceed the safety benefit if the line were predominantly in a Class 1 or Class 2 location.12 Accordingly, the 9 Odorization of Gas in Transmission Lines, 40 Fed. Reg. 20,279, 20,280 (May 9, 1975). 10 Id. 11 Gas in Transmission Lines: Odorization Requirements, 38 Fed. Reg. 22,044 (Aug. 15, 1973). 12 40 Fed. Reg. at 20,281.#

320071006_Final Order_12042009_text.pdf, page 87 purpose of the exception is to permit a generally short lateral line situated predominantly in a Class 1 or Class 2 location to be non-odorized despite the fact that it may cross or terminate in a Class 3 or Class 4 location. Given the safety importance of the general odorization requirement articulated above, I believe PHMSA must construe this exception narrowly. PHMSA’s interpretation of § 192.625(b)(3) With these principles in mind, I find the methodology utilized by ANR for calculating the length of a lateral line is not valid. Respondent’s methodology of tracing the length of a lateral from its end point at a distribution facility back to the common origin of the entire lateral system is not consistent with the intent and purpose of the odorization rule. By calculating the length of each lateral in this manner (from different end points to the same point of origin), ANR’s method involves duplicative counting of the common mileage closer to the beginning of the system— mileage generally located in rural Class 1 and Class 2 areas. Duplicative counting of such mileage “overweights” areas in Class 1 and Class 2 locations, with the potential to skew the results in favor of determining that pipelines have more than 50 percent of their length in a Class 1 and Class 2 location and thus artificially inflating the number of lines meeting the exception for odorization. In addition, ANR’s method of calculating the length of laterals through various branches, sometimes over hundreds of miles, is not consistent with the intent of the lateral exception to exclude generally “short” segments of pipeline. The average length of ANR’s laterals using Respondent’s methodology is approximately 172 miles, resulting in approximately 100 miles of pipeline in Class 3 areas (including any duplicatively-counted mileage) where combustible gas is being transported in high-population areas without odorization. The lateral exception was not meant to exempt entire pipeline systems on the ground that their aggregate mileage is predominately in rural areas. Moreover, ANR’s methodology has the potential to result in more non-odorized Class 3 locations than even a simple aggregate of total system mileage because methodology frustrates the safety goal of the odorization rule. Respondent duplicatively counts upstream mileage in Class 1 and Class 2 areas.13 This The correct and proper methodology for calculating the length of a lateral line must be consistent not only with the text of the regulation but also with its underlying safety purpose. Therefore, after careful review, I find, for purposes of § 192.625(b)(3), that a lateral line terminating at a distribution center originates at the first upstream connection with another transmission line. An operator shall calculate the length of a lateral line from its terminus at a distribution facility to the line’s first upstream connection with another transmission pipeline, whether that connection is with another lateral transmission line or with a transmission line that is not a lateral. See Figure 2 as an example of the proper application. 13 In its Brief, ANR argued that a statement in the rule’s preamble demonstrates long segments of pipe may also fall under the exemption. Brief at 2. The reference to a hypothetical pipeline that “could traverse a major metropolitan area . . . for perhaps 150 miles” was a minority view statement by a member of the Technical Pipeline Safety Standards Committee, not a statement by PHMSA. 40 Fed. Reg. at 20,282. Nevertheless, PHMSA recognizes there may be situations where a lateral meets the exception in § 192.625(b)(3) even though it is not “short.” But in the present case, PHMSA must reject the manner in which Respondent artificially increased the calculated length of the laterals as it is inconsistent with the general intent of the exemption to apply to short segments of pipe.#

320071006_Final Order_12042009_text.pdf, page 98 Figure 2: Identification of laterals for purposes of § 192.625(b)(3) (not to scale). This interpretation is consistent with the text of the regulation, as well as the intent and purpose of the rule because it furthers the safety purpose of the requirement that combustible gas transported by pipeline in a Class 3 or Class 4 location be odorized, except for short lateral segments to which the exception in § 192.625(b)(3) was intended to apply. Interpretation by adjudication Respondent contended in its Response and at the hearing that if PHMSA were to adopt this interpretation of § 192.625(b)(3), it would constitute a change in administrative policy which should instead be made by rulemaking.14 I find Respondent’s contention unpersuasive for several reasons. First, there is no evidence in the record to suggest there is a settled administrative policy upset by the present interpretation. Respondent has not cited any agency statement or practice that established another method for calculating the length of a lateral line under § 192.625(b)(3). While ANR did allege that several PHMSA regional offices “have accepted an AGA-type understanding” of lateral lines, there is no evidentiary support for this assertion other than perhaps an absence of enforcement cases against operators for similar violations. 15 The absence of prior enforcement cases does not equate to an affirmative statement of administrative policy. If anything, the lack of public statements on this issue demonstrates PHMSA has never issued a formal decision about how an operator must calculate the length of pipelines in a lateral system for purposes of applying § 192.625(b)(3). 14 Supplemental Response at 2. 15 ANR hearing handout at slide 25.#

320071006_Final Order_12042009_text.pdf, page 109 Second, PHMSA is not required to undertake a rulemaking in order to formulate a new interpretation of § 192.625(b)(3). Agencies have discretion to set forth regulatory interpretations by rulemaking or by adjudication. 16 After reviewing all of the evidence presented in light of the interpretation of § 192.625(b)(3) set forth in this decision, I find Respondent operates the following transmission pipelines: Line 360 (Appleton) is a lateral of 0.86 miles in length with 100 percent of its length in a Class 3 location; Line 266 (N. Appleton) is a lateral of 0.99 miles in length with 95 percent of its length in a Class 3 location; Line 207 (Jackson) is a lateral of 0.25 miles in length with 100 percent of its length in a Class 3 location; Line 321 (New Berlin) is a lateral of 4.01 miles in length with 66 percent in a Class 3 location; Line 355 (Oshkosh) is a lateral of 1.66 miles in length with 58 percent in a Class 3 location; Line 1-355 (Oshkosh Loop) is a lateral of 1.67 miles in length with 56 percent in a Class 3 location; and Line 361 (Little Chute) is a lateral of 3.15 miles in length with 55.6 percent in a class 3 location.17 Each of the above transmission pipelines is a lateral line that transports gas to a distribution center. More than 50 percent of the length of each lateral line is in a Class 3 location. Accordingly, pursuant to § 192.625(b), Respondent must ensure that the combustible gas in each of these pipelines is odorized. Respondent has acknowledged that each of the seven pipelines is not odorized. Therefore, I find that Respondent violated 49 C.F.R. § 192.625(b) by failing to odorize combustible gas in transmission lines in Class 3 locations. This finding of violation will be considered a prior offense in any subsequent enforcement action taken against Respondent. COMPLIANCE ORDER The Notice proposed a compliance order with respect to Item 5 in the Notice for violations of § 192.625(b). Under 49 U.S.C. § 60118(a), each person who engages in the transportation of gas by pipeline or who owns or operates a gas pipeline facility is required to comply with the applicable safety standards established under chapter 601. Pursuant to the authority of 49 U.S.C. § 60118(b) and 49 C.F.R. § 190.217, Respondent is ordered to take the following actions to ensure compliance with the pipeline safety regulations applicable to its operations. Respondent must— 16 NLRB v. Bell Aerospace Co., 416 U.S. 267, 292–94 (1974) (finding that prior case law dictates that the agency is “not precluded from announcing new principles in an adjudicative proceeding and that the choice between rulemaking and adjudication lies in the first instance within the [agency’s] discretion”) (citing SEC v. Chenery Corp., 332 U.S. 194, 202 (1947) and NLRB v. Wyman-Gordon Co., 394 U.S. 759 (1969)). 17 As stated above, the allegation of violation with respect to Line Numbers 350 and 201 has been dismissed without prejudice for lack of evidence.#

320071006_Final Order_12042009_text.pdf, page 1110 1. Develop and submit procedures for conducting an evaluation of the entire ANR pipeline system for the purpose of identifying each pipeline, or portion thereof, including lateral lines, that must be odorized in accordance with § 192.625(b). The procedures shall also provide for the ongoing review and determination of which pipelines must be odorized. Submit the procedures for conducting the evaluation within 30 days of receipt of this Final Order. 2. Conduct an evaluation of the entire ANR pipeline system pursuant to the procedures developed in accordance with Paragraph 1 of this Compliance Order and identify each pipeline, or portion thereof, including lateral lines, that must be odorized in accordance with § 192.625(b). Complete the evaluation and submit the results to the Director within 60 days of receipt of this Final Order. 3. For each pipeline that is required to be odorized in accordance with § 192.625(b) but which is not presently so odorized, develop a schedule for performing corrective action to ensure proper odorization in accordance with § 192.625(b). Corrective action must be completed so that Respondent is in full compliance with § 192.625(b) within one (1) year of receipt of this Final Order. 4. Submit ANR’s written procedures for the installation, operation, and maintenance of odorizers on the ANR pipeline system within 30 days of receipt of the Final Order. 5. Maintain documentation of the safety improvement costs associated with fulfilling this Compliance Order and report the total cost as follows: (a) total cost associated with preparation and revision of plans and procedures, and performance of studies and analyses; and (b) total cost associated with physical changes, if any, to the pipeline infrastructure, including replacements and additions. 6. Complete each of the above items and submit documentation of compliance to the Director, Central Region, Office of Pipeline Safety, Pipeline and Hazardous Materials Safety Administration, 901 Locust Street, Suite 462, Kansas City, MO 64106-2641. The Director may grant an extension of time to comply with any of the required items upon a written request timely submitted by the Respondent demonstrating good cause for an extension. Failure to comply with this Order may result in administrative assessment of civil penalties not to exceed $100,000 for each violation for each day the violation continues or in referral to the Attorney General for appropriate relief in a district court of the United States. WARNING ITEMS With respect to Items 1, 2, 3, and 4, the Notice alleged probable violations of Part 192 but did not propose a civil penalty or compliance order for these items. Therefore, these are considered to be warning items. The warnings were for:#

320071006_Final Order_12042009_text.pdf, page 1211 49 C.F.R. § 192.201(a)(2) (Notice Item 1) – Respondent’s alleged failure to set each pressure relief station to ensure that pressure does not exceed the maximum allowable operating pressure (MAOP), plus permitted build-up. Certain relief valves were allegedly set such that the system might exceed MAOP, plus allowable build-up, at the following operating areas: St. John, Lagrange, Alden, Greensburg, Meade, New Windsor, and Bonduel.18 49 C.F.R. § 192.203(b)(9) (Notice Item 2) – Respondent’s alleged failure to install each control line to prevent damage to any one control line from making both the regulatory and the over-pressure protective device inoperative. Fuel gas regulator stations at the following locations were allegedly installed such that the control lines for the operator and monitor were on the same pressure sensing tap: Maitland, Enterprise, Mead, Woodstock, and Kewaskum. A single failure at the tap could result in the loss of both the operator and monitor causing an over-pressure situation. 49 C.F.R. § 192.465(a) (Notice Item 3) – Respondent’s alleged failure to test each pipeline that is under cathodic protection at least once each calendar year, but with intervals not exceeding 15 months, to determine whether the cathodic protection meets the requirements of § 192.463. In the St. John area, between 2003 and 2004, the inspection of 34 test points at foreign line crossings allegedly exceeded the 15-month interval. 49 C.F.R. §§ 192.603(b) and 192.605(c)(4) (Notice Item 4A) – Respondent’s alleged failure to keep records necessary to administer the procedures established under § 192.605(c)(4). Respondent allegedly failed to document the periodic review of responses to abnormal operations to determine the effectiveness of response procedures in the St. John and Sandwich operating areas. 49 C.F.R. §§ 192.603(b), 192.605(e) and 192.615(b)(3) (Notice Item 4B) – Respondent’s alleged failure to keep records necessary to administer the procedures established under §§ 192.605(e) and 192.615(b)(3). Respondent allegedly failed to document the evaluation of employee response to training drills to determine whether emergency procedures were effectively followed. Having considered such information, I find, pursuant to 49 C.F.R. § 190.205, that probable violations of 49 C.F.R. §§ 192.201(a)(2) (Notice Item 1), 192.203(b)(9) (Notice Item 2), 192.465(a) (Notice Item 3), 192.603(b) and 192.605(c)(4) (Notice Item 4A), and 192.603(b), 192.605(e) and 192.615(b)(3) (Notice Item 4B) have occurred and Respondent is hereby advised to correct such conditions. In the event that OPS finds a violation for any of these items in a subsequent inspection, Respondent may be subject to future enforcement action. 18 In its Response, ANR requested confirmation that its schedule for re-setting the devices is acceptable. If this request has not already been answered, the Director can provide guidance to the company in this regard.#

320071006_Final Order_12042009_text.pdf, page 1312 Under 49 C.F.R. § 190.215, Respondent has a right to submit a Petition for Reconsideration of this Final Order. The petition must be received within 20 days of Respondent’s receipt of this Final Order and must contain a brief statement of the issue(s). The terms of this Final Order shall remain in full force and effect notwithstanding a petition, unless the Associate Administrator, upon request, grants a stay. The terms and conditions of this Final Order shall be effective upon receipt. ___________________________________ __________________ Jeffrey D. Wiese Date Issued Associate Administrator for Pipeline Safety#